Hmmm..
Not really a huge Cruz supporter but let me ask this:
If it replaces the business tax of 34 % with a 10 % tax and it is applied to the full price of any import, does it not effectively do exactly what Trump was with regards to making US business more competitive with Tariffs?
say the VAT is 15 percent. So Ford when it sells a car adds 15 % to the added value of the car it sells (deducting labor and parts), not on the entire cars cost, just the value added.
But Honda, which is making the car overseas has to add the VAT to the entire cost of the product, as it has not been taxed at all prior.
Combined with the lower business tax rate of 10 % it would make US business much more competitive, or so I would think.
Also if not applied to overseas sales, it would make US exports much more competitive, as there would be no VAT tax applied to exports.
Feel free to correct me if there is an error in my judgment, but having ben involved in selling US good into the EU, the VAT tax is one of the ways they make us goods less competitive.
Also, while I do not think Cruz can get a flat rate of 10 %, if he can get under 15 % and apply that to all income regardless of source it would make more tax payers which would move things in the right direction.
Not that I am a huge Cruz fan, but to be honest for the first time I see a means by which his economic plan might be very good for us businesses. I may have to eat some crow from Cruz fans I have said that Cruzes plan offers nothing to Northeastern middle class folks.
Feel free to correct me if there is an error in my thinking.
The 10% tax has nothing to do with businesses, that is for individual’s income tax. Everyone has to pay a 10% income tax...The 16% tax will be applied to EVERY product and service that is sold in the USA...if you make donuts and you sell them for $1.00 each, you add on 16% when you give your customer his bill....it works just like a sales tax...in essence it is a Federal Sales tax.
Tarrif would be added to a product, like a car, at the point of entry, then when the dealer sells the car, the 16% VAT tax would be added.
Trump threatens to apply a Tarrif in order to encourage China and others to play by the rules...a threat of a Tarrif is a tool in his tool box, not something he necessarily wants to do but will if that is what it takes to get these guys to play by the rules.
In your Ford Scenario the 16% would be added by the manufacturer when he sold the car to the dealer, AFTER he had determined the price for which he intended to sell the product...thus, value added (VAT)
Your Honda thing...no....the VAT is added to all products after sales price is determined, it is not figured in as part of the cost.
The Cruz plan would destroy our economy, it is extremely inflatioary, it creates hardship for the most vulnerable, it will impact jobs, it will force more companies overseas...Cruz has no economic background or experience. He is a 1st term Senator Lawyer who has spent his life climbing the political ladder. He pretended to be an outsider when he was an insider all along and proof of that is when he was President of the Senate Committee and in conjunction with McConnell upended the campaigns of several conservative candidates...Tax Plan is a disaster.
“If it replaces the business tax of 34 % with a 10 % tax and it is applied to the full price of any import, does it not effectively do exactly what Trump was with regards to making US business more competitive with Tariffs?”
Vats do not replace other taxes.
The vat is added to the product at every stage and is based on the increase in value between raw materials and finished products. You do not get to deduct expense for the increased value. My example above may have been confusing let me try again.
This time with numbers
Pretend I cut down the huge mango tree in my back yard and sell the truck and large branches to Bob the saw mill owner for $100 plus the VAT making the total cost to Bob $116.00
Bob processes the trunk and large branches into lumber and sells the lumber to Sam the custom furniture maker for $1000
$1000.00 - 116.00 = 884.00 x 0.16 = 25.44.
So Sam pays $1025.44 for the lumber.
Sam turns the lumber into a matching dinning table, with 8 chairs, side board and china cabinet which he sells to a Phil who owns a furniture store for $5000.00.
$5000.00 - 1025.44 = 3974.56 x .16 = 635.93
So Phil pays s total of $5635.93 for the lumber.
Phil places the custom furniture in his store priced at $15,500.00
$15,500 - 5635 = $9865.00 X .16 = $ 1578.40.00
Phil sells the furniture to Suzy who pays $15,000 + 1578.40 = $1707.40
Add all that tax together equals
$1578.40 + $635.93 + $25.24 + $16.00 = $2255.57 in tax on an original purchase of $100.00
At no point does the VAT tax replace income for the business or sales taxes.
I lived in the UK with a 20% VAT and they still have both
Second of all, a VAT of 16% ( which is what Cruz is asking for ) has to be added to EVERY SINGLE PIECE of something produced, along the line, with yet another 16% added to the finished product. That AND his suggested 10% income tax, which also excludes any and all deductibles, makes even scraping by, IMPOSSIBLE for most people.
It also means that every single company becomes an arm of the Fed Government and part of the IRS; which heavily adds to the cost of doing ANY business at all!
OTOH, Trump's idea of re tariffs, is ONLY applied to businesses outside of the USA, including American ones, at 35% per finished product! It is his way of getting American companies to make their products HERE and to curb the game playing with deflating foreign currencies, which the Chinese and some other nations engage in.
I hope that this makes it clearer to you.
Cruz' tax specifically says they may not deduct the cost of labor.